When Employees Share Stock Pain, Not Gain

More employees are sharing in company gains through stock option plans, but what happens when the pricedrops and it comes time to share the pain?

Much depends on how well the company has conveyed the message that stock is a long-term investment and thatinvestments can be risky business.

An increasing number of U.S. employees are eligible to receive stock options, according to a recent WatsonWyatt Worldwide survey. Last year 19% of employees were eligible, up from 12% in 1998, and more thanthree-fourths of eligible workers received grants in 1999.

Down the Ladder

"Stock options, once reserved exclusively for senior executives, are steadily being pushed further down thecorporate ladder," says Ira Kay, North America practice director of Watson Wyatt's human capital group. "Whilestock options have generally worked well for companies and the economy, companies need to be careful not togo overboard in using them."

Overall communications strategy is critical when companies have stock option plans, says Ed Carberry, projectdirector of the National Center for Employee Ownership in Oakland, Calif. The most successful strategy providesregular written and electronic messages and perhaps group meetings as well.

These messages and meetings provide an opportunity to explain to employees that "stocks are going to go up andthey're going to go down," Carberry says. "They need to see this as a long-term thing. At tech companies people are looking dailyat stock prices and are looking for quick cash."

Cathy Ivancic, senior consultant with Ownership Development Inc. in Akron Ohio, agrees with the need forongoing communication so there aren't any unsettling surprises.

"If you only talk about the good news and don't talk about the bad, people don't understand how the businessmakes money. You haven't brought them in," she says. "You have to help everybody understand how theycontribute to performance."

When there's a downturn, "the danger is to operate under the illusion that the company has been as successful aslast year. That leaves you with people who are ill-informed, and then they can't be helpful" in improvingperformance, she says.

Some companies use a dip in the stock price as an opportunity to rally people together, according to Carberry."They say: 'What can we do to improve? What can we do to get the stock price up?' They share information andget people thinking as owners of the company."

He says the company needs to show employees the role they can have, especially in the short term, in turning thesituation around.

"The company should say: 'In the next quarter this is what we should be working on.' That's the most positiveway to look at things. That is what incentive pay and equity ownership really means."

Some companies soften the blow of a bad quarter or year, but Ivancic believes protecting employees from thereality of business generally backfires down the road.

"The tendency to protect employees from the bad news and give them a little something in a bad year doesn't govery far in teaching people."

Instead, companies should celebrate the small wins even in bad years, not with money but in other ways, she says."Show people that they controlled what they could control. Let them know they are setting themselves up for thefuture."